Question

Gavin​'s Glassworks makes glass flanges for scientific use. Materials cost $3 per​ flange, and the glass blowers are paid a wage rate of $24 per hour. A glass blower blows 10 flanges per hour. Fixed manufacturing costs for flanges are $22,000 per period. Period​ (nonmanufacturing) costs of flanges are $19,000 per​ period, and are fixed.

Requirements

1.	Graph the​ fixed, variable, and total manufacturing cost for​ flanges, using units​ (number of​ flanges) on the​ x-axis (the horizontal​ axis).
2.	Assume Gavin​'s Glassworks manufactures and sells 8,000 flanges this period. Its​ competitor, Flora's​ Flasks, sells flanges for $9.75 each. Can Gavin sell below​ Flora's price and still make a profit on the​ flanges?
3.	How would your answer to requirement 2 differently if Gavin​'s Glassworks made and sold 11,000 flanges this​ period? Why? What does this indicate about the use of unit cost in decision​ making?

Answer 1

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SHREE Date: 1 1 Page No. Graph Legend X axis: 1cm= 1000 flange Y axis : 1cm = $10000 E Hooud Total cost line 9000+ 700067 50000+ Fixed cost line Fooat 10000 t 1000 3000 5000 7000 9000 11000 B00O X axis Lo SH

SHREE Date: 1 1 Page No. Variable cost per of wages flanac - material cost - = $3 +$24 10 = $5.4 por flange if maximum selling price is $9.75 Break even point Then contribution per flange = 9.75 -5.4 = $4.35 Break even point = fixed cost Contribution per unit 22000 19000 = 9425 Flanges In order to not make a loss we must sell 9425 flanges op at 9.75 each of But we told could sell enly 8000 flonges. Hence we will make a loss. Cannot sell below Conclusion flora's : No price Gavin .

Date: 1 1 Page No. we can sell 11000 flanges the definately We can earn some profit and also if we want a want we can lower the prices below flora's scllina price oral we can This is 9425 above profits been because our break even point is at flanges and any flange sold 9425 will directly contribute towards as all the fixed costs have recovered Also the lowest selling charge and still incat Computed as below price no that loss we could can be fixed cest Too 0 - 22000 +19000 Contribution No. of units Contribution = 4100c 110cc 3.7273 = teast Selling price contribution = Variable cest t = 54 + 3.7272 = $9.127 per - flange